Show Hide image

US default on debt could lead to worse recession, Obama warns

The White House increases pressure on Congress to raise $14.3 trillion debt ceiling ahead of seeming

The US risks defaulting on its borrowing for the first time in history unless its debt limit is legally risen, President Obama has warned.

Speaking at a town hall meeting on Sunday, Obama stated the national - and global - implications of the failure to raise the US $14.3 trillion debt ceiling, saying: "If investors around the world thought that the full faith and credit of the United States was not being backed up, if they thought that we might renege on our IOU's, it could unravel the entire financial system."

He continued: "We could have a worse recession than we already had, a worse financial crisis than we already had."

US government debt has been moving ever closer and is expected to arrive at the debt limit within this month, according to the US Treasury. Meanwhile, Congress has yet to reach an agreement on terms to lift the debt limit, in a fiercely partisan debate which will undoubtedly carry through to the 2012 presidential election.

Negotiations between House Democrats and Republicans have so far lasted weeks, during which time chairman of the Federal Reserve, Ben Bernanke, was lead to deliver a historic press conference on monetary policy.

The debt limit was set in 1917 to allow the US extra borrowing power to aid its entry into World War One, and also accounted for the public debt ceiling. Since then it has raised variously; 10 times since 2001 in the events of agreed bail-out packages and extra borrowing in the wake of the financial crisis.

Treasury Secretary Timothy Geithner has said he could delay a default until early August by setting lawyers on the accounts.

Alice Gribbin is a Teaching-Writing Fellow at the Iowa Writers' Workshop. She was formerly the editorial assistant at the New Statesman.